June 19, 2015

Legislators want a 'Standard Buyer' to acquire distributed
generation and value it properly

Lawmakers in Maine may have found the best solution for
getting off the net metering merry-go-round since Massachusetts’ minimum bill proposal sank, clean
energy advocates in the state say.

The Maine Office of the Public Advocate and an influential
state legislator led a joint committee of the Legislature to
unanimous approval of a proposal that will offer solar developers at every
market level an opportunity to opt out of net energy metering (NEM). Instead of
retail rate NEM, they will have the choice of a new plan that allows
them to capture more value for their solar.

“We've brought stakeholders together only to find that, for
different reasons, everyone is looking for renewable energy policy that will
bridge us seamlessly into the future,” explained Rep.
Sara Gideon (D), the House Assistant Majority Leader who helped
craft the proposal.

“In a policy area that is so often partisan and that often pits
environmentalists, solar businesses, and utilities in opposition to each other,
we are now working on really exciting and groundbreaking policy,” she said.

Recent distributed energy debates in Maine
look much like similar discussions surrounding the value
of solar from Hawaii to Massachusetts. They center on two key
aspects: How do distributed solar providers and utilities get past the
looming 1% of peak load NEM reconsideration trigger that Central Maine Power (CMP),
the state’s dominant utility, will soon hit? And how do legislators apply Maine’s value of solar (VOS) study, submitted earlier this
year, that found solar-generated electricity’s actual value could be as high as
$0.33 per kWh -- even though Maine’s retail electricity rate is around $0.13
per kWh?

The Resolve

In Maine, a legislative resolution is called a
Resolve.

“Resolve, To Develop an Alternative to Net Energy Billing
that Fairly and Transparently Allocates Costs and Benefits of Distributed
Generation to All Customers,” LD 1263, was recently approved by the Legislature’s
bipartisan Joint Committee on Energy, Utilities and Technology. If approved by
the full House and Senate and allowed to become law by the Governor, it would
initiate a proceeding at the Maine Public Utilities Commission to answer
those two key questions.

“Solar is coming to Maine. Over time, with rising
electricity rates and the falling price of solar, we will have more solar one way or
the other,” explained Maine Public Advocate Timothy R. Schneider. “The VOS
study calculates what the value of solar is and we are not capturing it but we
want to because that would be a good deal for ratepayers.”

The Resolve was supported by the committee’s seven Democrats
and six Republicans, representing both the lower and upper houses. It was
endorsed byRevision
Energy, the Natural
Resources Council of Maine, and the energy subcommittee of the Maine
Association of Building Efficiency Professionals, which includes many solar
installers.

It is opposed by The Alliance for
Solar Choice, which calls it -- without explanation -- an attempt
“to keep Mainers captive to their constantly rising rates.”

The Resolve designated a recent value of solar white paper,
entitled “A Ratepayer Focused Strategy for Distributed Solar in Maine,”
as the basis of the regulators’ deliberations. The white paper was
commissioned by the Public Advocate’s office and written by Strategen
Consulting’s Lon Huber.

“We have found it increasingly challenging to agree on a policy that works
for solar,” Gideon noted. “The basic concepts in the white paper are why we
have been able to proceed as far as we have.”

What’s next for the Resolve

“The Legislature finds that the policy structure described
in [the white paper] merits further exploration,” the Resolve declares,
while specifying that the legislature does not affirm the white paper’s
hypothetical numbers for installed capacity and per-kWh rates.

“The legislature and state regulators will determine those
numbers,” Schneider said.

The Resolve instead instructs Maine’s commission to “develop
an alternative to net energy billing through a stakeholder process” that
captures a consensus and to report its findings to the legislature by the
end of January 2016.

The commission’s report is also to include an overview of
the alternative policy, technical specifications, necessary rules and policies, a
proposed timeline, technical and legal barriers, and areas where stakeholders
could not agree.

With NEM, which Maine’s investor-owned utilities are
required to offer, customers get bill credit at the retail electricity rate for
the electricity their on-site systems send to the grid. It is popular with
customers and the solar industry primarily because, the paper explains, it is simple.

But skyrocketing solar growth driven by the falling cost
of solar and the increasing cost of electricity is undermining consensus
agreement on NEM, the paper explains, because “customers are compensated at
rates that do not reflect the value of the resource.”

The problem with NEM
economics, it adds, has resulted in residential customers facing changes in
rate design that compromise the value proposition of their investments. NEM
does not drive solar adoption by commercial-industrial customers, whose
big rooftops represent a huge market opportunity, because their per-kWh charges
are much lower than their demand charges.

Utilities object to NEM because it seems to lead to a shift of costs for grid infrastructure to non-solar
owners, the paper reports. And the lack of a connection between the
compensation rate and solar’s actual value makes it difficult to conclusively
prove its costs and benefits to the satisfaction of utilities or solar
advocates.

The white paper

Huber’s white paper offers a new way to use the
VOS study through a multi-tiered Market-based Aggregation Credit (MAC) program with
five policy objectives:

An alternative to NEM that is “fair” and “cost-conscious”

Long-term compensation for solar that is based on the
value of solar analysis and better than NEM

A competitive reverse auction for the commercial-industrial
sector and a capacity-based declining block program for residential solar
— two market mechanisms designed to drive the price of solar down, while
another program provision (see objective 5) captures its full value

The potential for Maine to get to as much as 300 MW of new
solar capacity by 2025, with 150 MW coming from the wholesale segment, 100
MW from the residential and commercial sectors, and 50 MW from industrial and
community solar markets

Procurement by a Standard Buyer agency that would aggregate
and sell renewables-generated electricity into all available markets to
monetize the full value of solar

A reverse auction mechanism (RAM) invites developers of
commercial-industrial and utility scale projects to bid competitively against
other developers to provide renewables capacity. The buyer, in this case the
Standard Buyer, would pick the offers that come in at the lowest prices.

In a declining block program the price the Standard Buyer
pays for residential solar would be pre-established by the commission. It might
be the VOS price of $0.33 per kWh, or the direct benefit to customer price of
$0.20 per kWh, or the retail rate of electricity, or the utility’s avoided cost
for other generation.

When the state achieves a commission pre-designated block of
capacity, the price the Standard Buyer pays new solar owners will drop to
a lower level on the assumption the higher capacity means solar needs
less of an incentive and economies of scale should be at work to make
unsubsidized solar more affordable.

The white paper uses a $0.20 per kWh as the price where
regulators should start the reverse auction bidding and the declining
block rates.

Perhaps the most innovative part of Huber’s program is that
it will test Maine’s VOS calculations in real markets. As the Standard Buyer
acquires and resells solar-generated electricity, it will be tracked. That
could help illuminate debates over the value of solar in other states.

The Standard Buyer

Centralized management of all the customer-sited and
wholesale distributed generation, procured through 20 year fixed-price
contracts under the Standard Buyer, would “allow for a more efficient
aggregation and sale of the different attributes solar energy can provide,” the
paper explains. “The [Standard Buyer] would aggregate the energy, RECs,
capacity value, and ancillary services potential and monetize these in the
applicable markets.”

The white paper uses a $0.20 per kWh rate as a “placeholder”
for the price at which regulators will ultimately start the reverse
auction bidding and the declining block rates, Schneider explained.

“It is the sum of the things in the VOS that directly benefit
ratepayers, including the 20 year levelized price for energy, avoided transmission and
distribution, avoided generation capacity, and avoided reserve capacity,” he
said.

Revenues from sales of distributed generation into those
markets by the Standard Buyer go into Maine’s stranded cost recovery mechanism and get
redistributed to all ratepayers.

“It is transparent and it is equitably allocated to all
ratepayers,” Schneider said.

The full value of the DG production is returned to the
system owner as a tax-free bill credit. But the system owner pays the full
retail rate for all usage. “And because the output of the solar is separately
metered, that customer pays a full transmission and distribution charge so
there is no shift of costs to non-DG owners,” Schneider said.

In the Resolve, the committee asks the commission to
find an alternative to NEM by using the program laid out by the white
paper and values derived in the VOS study for different applications
of solar.

As a utility executive, Rabago helped create Austin Energy’s 2006 first-ever value of solar tariff. He
endorsed the Maine proposal’s innovation but raised three concerns. First, if
more value is returned by solar than is paid at the retail electricity rate,
solar owners end up essentially subsidizing non-solar owners. Second, it seems
to pass over the quantifiable system benefits solar provides to non-solar
owners. Third, it asks for solar to be bid at below its full value.

Strengths, weaknesses, and politics

There is stakeholder consensus on using the white paper and
values derived in the legislatively-mandated Value of Solar study for what
will essentially be an alternate compensation mechanism to NEM, Gideon said.
There is also agreement on using the residential rate declining block
program and on NEM being phased out when the alternate compensation
mechanism is fully phased in.

There is concern about getting the reverse auction mechanism right to protect smaller
businesses and about getting the long term contracts for grid scale solar
right, she added. And there is disagreement on the numbers and the components
of the alternate compensation mechanism.

Gideon singled out the efforts of Democratic Representative
Marty Grohman and Republican Representative Larry Dunphy in pushing the Resolve
through the committee.

Republican Governor Paul
LePage is said to currently be hostile toward legislation sponsored
by Democrats but has been known to let popular initiatives like this one
become law without his signature.

"I think this idea will work but some of it is brand
new, which is why we are using the Resolve to send it to the PUC,” Gideon said.
"We are asking them to continue to take input from all the
stakeholders and then to send it back to us with an explanation of how it would
really work with real numbers."